T-Mobile and Sprint Corp Ink Deal

According to the news report by Bloomberg, on Sunday, T-Mobile US Inc. had agreed to buy Sprint Corp for a price of $26.5 billion in stocks. The deal follows many years of maybe-maybe-not talks between Deutsche Telekom AG, T-Mobile’s owner and SoftBank Group Corp., the owner of Sprint.

This deal is expected to be the focus on intense regulatory scrutiny as T-Mobile and Sprint are 2 of the 4 competitors in the US wireless industry. The other two are the leaders in the industry, Verizon and AT&T. If these two companies merge, the number of competitors will be down to three, which may not be acceptable to US regulatory authorities.

The two companies are taking a gamble on this deal, hoping to team up and develop next-gen wireless networks and also beat the competition and market leaders, Verizon and AT&T.

T-Mobile’s Chief Executive, who will also be the CEO of the new entity, John Legere stated that the new company was going to have an impact on the US. According to the deal, the new company would operate as T-Mobile and would generate around $74 billion in revenue and would have about 70 million subscribers for its wireless network.

The country’s number one carrier, Verizon, generates about $88 billion in revenue and has more than 111 million subscribers to its network. The number two company, AT&T has a $71 billion revenue and has a subscriber base of about 78 billion customers.

In this deal, each Sprint share is being valued at 0.10256 per T-Mobile share, which is about $6.62 per share (this figure is based on T-Mobile’s closing share price at the end of trading on Friday, April 27). The price ratio had originally been fixed on T-Mobile’s stocks at the end of trading on April 9, which would have valued Sprint at $6.13 per share. However, news of the companies’ negotiations was leaked and both their stocks skyrocketed, which added to the valuation of Sprint.

Also as part of this deal, Deutsche Telekom will own 42% of the company, while SoftBank will own 27%. The President and Chief Operating Officer of the new company will be T-Mobile’s Mike Sievert. T-Mobile’s Chairman Tim Hoettges will also become the Chairman of the new company. The new company’s board of directors will include SoftBank’s CEO Masayoshi Son as one of its members.

Shares of Deutsche Telekom rose by 1.3% to €14.74 during intra-day trading on Monday in Frankfurt. SoftBank’s shares also went up by 4.1% to close the day’s trading at ¥8,501 in Tokyo on Friday. This is the highest SoftBank’s shares have gone in the last four months.

The companies are expecting synergies of around $43 billion, based on their net present values. Most of the savings are expected to come from the companies’ network spending. This is because if the two companies merge, then two separate networks would not be necessary. Overlapping properties could be consolidated and the unnecessary antenna towers could be decommissioned. This would reduce the overall cost of network upgrades as well as maintenance. According to T-Mobile’s CTO, Neville Ray, the new company would be able to decommission 35,000 cell sites.

Unlike other mergers that reduce costs by cutting jobs, the two companies stated that they planned to keep both headquarters, one at Bellevue, Washington and the other at Overland Park in Kansas. T-Mobile’s CEO stated that the new company would also lead to the creation of new jobs, most of which would be in the network division and would be in rural areas of the US, which is where expansion is planned.

Luis Aureliano is a business writer and financial analyst. With over 15 years of experience in global finance and an MBA in economics and management, Luis’s areas of expertise include business, marketing, communications, personal finance, macro economics, stocks and emerging markets.

About Money Journals News

MoneyJournals.com advises to carefully examine any claim or suggestion made by financial advisers, Journalists or bloggers, before investing or trading under any Brokerage. materials presented in Money Journals.com should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction. Money Journals supplies general market commentary and does not constitute investment or trading advice.